Abstract: In recent years, the government has introduced various subsidy policies to promote the smart transformation of the manufacturing industry. This paper uses the government, the platform, and the manufacturer as the research subjects to examine the impact that subsidies for platforms, manufacturers, and consumers respectively have on the smart innovation decisions of an IoT platform and a manu-facturer. The platform provides IoT technology services to the manufacturer, which develops and sells smart products to consumers through the platform. As a result, the manufacturer can gain demand spillover benefits based on the platform’s remote data processing capabilities. However, the cybersecurity risks associated with IoT also influence consumer purchasing decisions, ultimately affecting the smart innovation levels of both the platform and the manufacturer. By analyzing the smart innovation decisions of manufacturers and platforms under different government subsidy scenarios, this study identifies factors influencing the smart transformation of manufacturing and determines the optimal subsidy levels and forms for the government. The conclusions are as follows: (1) The level of demand spillover and software-hardware compatibility have a positive effect on smart innovation equilibrium outcomes, while the unit innovation costs and cybersecurity externalities of the IoT platform and manufacturer negatively impact the service levels and fees of the platform, as well as the profits of the manufacturers. (2) The impact of different government subsidies on the innovation of IoT platforms and manufacturers varies; subsidizing platforms and manufacturers helps increase their innovation levels, while subsidizing consumers only reduces the cost of purchasing smart devices without promoting innovation in the IoT platform company and device manufacturer. (3) No matter whether the government aims to maximize social welfare or promote the market coverage of smart products, it should allocate subsidies to IoT platforms and manufacturers, rather than subsidizing consumers.

Key words: government subsidies, IoT platform, device manufacturer, smart transformation, cybersecurity, demand spillover